IRS Insight on Letter 227 – Hint: It’s in Reply to Letter 226J

Those lucky employers who have already received a 226J letter from the IRS have a Letter 227 to look forward to! The Letter 227 is the acknowledgement letter Applicable Large Employers (ALEs) receive following their response to the Letter 226J.

The Letter 226J provides a preliminary calculation of the amount that an ALE may owe as a result of employer shared responsibility (ESR) penalties. So far Letters 226J have been issued reflecting tax year 2015. The Compliance Cornered Blog post on Letter 226J can be found here.

In recent guidance, the IRS notes that Letters 227 are meant to close ESR penalty inquiries or provide next steps regarding penalties. There are five (5) different 227 letters.

  1. Letter 227-J acknowledges receipt of a signed Form 14764. An ALE uses this form to indicate that it agrees with the penalty amount calculated by the IRS in Letter 226J. Payment of the amount calculated is submitted with Form 14764. No response is required for Letter 227-J after the case will be closed.
  2. Letter 227-K acknowledges receipt of information provided by the ALE and shows that the employer does not owe a penalty. This letter closes the case and does not require a response.
  3. Letter 227-L is used when the ESRP (Employer Shared Responsibility Payment) has been revised based on the information submitted by the employer. It includes an updated Form 14765 with revised calculations. The Form 14765 lists an ALE’s assessable full-time employees. An ALE receiving this letter can agree with the revised calculations or request a meeting to appeal the amount.
  4. Letter 227-M acknowledges the employer’s submission but shows that the ESRP did not change. The ALE can agree or request a meeting with the IRS.
  5. Letter 227-N reflects the decision reached following an appeals review. The letter will also close the case without further action by the employer.

A Letter 227 is not a bill demanding payment from the employer. Once the amount of the penalty has been assessed a CP220J which is a bill will be sent.

Letters 227-L and 227-M require a response. The due date for the response is noted in the letter.

The IRS web page explaining Letter 227 can be found here.

These new 227 letters – and the Letters 226J – underscore the complexity of the ACA’s Employer Shared Responsibility (ESR) reporting process. And, many of these letters would have been avoided had the called-for notification process to employers when an employee applied for subsidized coverage in the exchanges been fully implemented.

As a step toward reforming the ACA information reporting and Exchange verification process, the bipartisan Commonsense Reporting Act of 2017 (S 1908 and H.R. 3919) would provide individual consumers with much-needed safety nets, employers with relief from the burdensome reporting requirements and state and federally-facilitated Exchanges with an additional tool to verify tax credit and subsidy eligibility.
The National Association of Health Underwriters (NAHU) is part of a coalition, “Partnership for Employer-Sponsored Coverage (P4ESC),” supporting measures that would ease employer reporting and call for a prospective reporting system.

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